Iris Biefang-Frisancho Mariscal
Income velocity and non-GDP transactions in the UK
Biefang-Frisancho Mariscal, Iris; Howells, Peter
Authors
Peter Howells
Abstract
It is widely reported for many countries, including the UK, that income velocity has been highly variable around a declining trend in recent years. This paper advances the following hypothesis. The demand for credit and hence the broad money stock are influenced by total spending in the economy, rather than spending only on newly produced goods and services. Since total spending in the economy has generally increased relative to GDP (mainly because of asset transactions) credit and money have expanded more rapidly than GDP, with the resulting fall in income velocity. Using quarterly data from 1975 to 2008, we estimate a vector error correction with income velocity as the dependent variable and the ratio of total to GDP transactions as an explanatory variable. The results show substantial support for the hypothesis and raise (further) doubts about the information content of broad money aggregates for inflation targeting central banks. © 2012 Copyright Taylor and Francis Group, LLC.
Citation
Biefang-Frisancho Mariscal, I., & Howells, P. (2012). Income velocity and non-GDP transactions in the UK. International Review of Applied Economics, 26(1), 97-110. https://doi.org/10.1080/02692171.2011.580270
Journal Article Type | Article |
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Publication Date | Jan 1, 2012 |
Journal | International Review of Applied Economics |
Print ISSN | 0269-2171 |
Electronic ISSN | 1465-3486 |
Publisher | Taylor & Francis (Routledge) |
Peer Reviewed | Peer Reviewed |
Volume | 26 |
Issue | 1 |
Pages | 97-110 |
DOI | https://doi.org/10.1080/02692171.2011.580270 |
Keywords | cointegration, error correction model, credit supply |
Public URL | https://uwe-repository.worktribe.com/output/951628 |
Publisher URL | http://dx.doi.org/10.1080/02692171.2011.580270 |
Related Public URLs | http://www.informaworld.com/smpp/title~db=all~content=t713426883 |